Monday, October 19, 2015

When Goliath Eats Goliath

If you've been reading the blog for a while, you know that I am a fan of beer. Usually, I'm seeking out some delicious craft beer when I am not brewing my own. I will, of course, consume a Bud Light hanging with friends, but I do generally seek out what I perceive as tastier options from some of the craft breweries popping up around the country (and several here locally in Dallas). However, the news story that Anheuser-Busch InBev last week made an offer to purchase SABMiller did not fly under the radar. The deal would reportedly give the merged company 60 percent of the global beer market and put them in charge of the top brands in the U.S. including Budweiser, Bud Light, Coors Light, and Miller Lite, unless challenged by the courts.

How Can Small Breweries Compete?

This story doesn't echo David and Goliath, because in this story, one Goliath merges with another Goliath to fight off a horde of ever-proliferating Davids. The small breweries have little to worry about in one sense, because their existence and success have, in a way, led to the merger.

The trend in the past ten or fifteen years towards craft beer and breweries has disrupted the traditional market in a throwback to the pre-Prohibition competitive landscape. That shift has dramatically altered the competitive landscape for the large behemoths that had dominated the landscape for the previous seven decades or so. What's worse for the big guys, the smaller breweries tend to cooperate, collaborate, and support one another as they try to grow the share of the pie that they have access to, sometimes at the expense of the major brands.

Why Merge?

Why would the giants need to merge, though? It all comes down to growing organically versus inorganically. For the major beer producers to grow organically, some variables would have to change.

They would need a larger market, but given regulations around alcohol consumption and general social norms, the market is likely not expanding rapidly enough to sustain a growth trajectory.

Alternatively, they could be innovating, creating new beers to compete in the market, but much of their lifespan as a company, they have focused on mass market production, rather than creativity. They have attempted pushing competitors into the craft beer market, for sure, but the effort to launch a new brand at their global level does come with cost and substantial work.

Inorganic growth provides a much easier approach. All you need is a big wallet, which they have. The majors have been gobbling up craft breweries for years, but this move allows for a huge boost to profits, probably looking for overlap and synergies in cost centers with a mere stroke of a pen. The ease makes it attractive.

What's Next?

The brewing industry continues to explode, and the uptick in craft competition across North America and the globe shows little sign of stopping anytime soon. But the explosion fits naturally in a boom-and-bust, grow-and-merge cycle. More and more competition will be created, some will succeed, some will fail. Among those successes, several will consolidate through mergers.

The industry right now mirrors the telecom industry after the Telecommunications Act of 1996, where competitors to the "Baby Bells" were springing up in every corner of the United States. Here, twenty years later, only the largest of those competitors remain, many created through merging and inorganic growth of their own.

Only time will tell if the independent entrepreneurial spirit of the craft brewers can hold out against ever-increasing offers from larger and larger competitors.

What's The Takeaway?

If you don't own a microbrewery, you might let this news slip on by. But the story contains lessons for those at all levels of a competitive landscape.

For the giant incumbents, the market could change, or new and innovative competitors can arise that will dramatically erode your profits or growth. Where one competitor might only nip at your heels and fight with you over a percent of a percent of market share, four thousand of the same competitors become a serious problem.

For startups and competitors, the message could be one of hope. No matter how insurmountable the behemoths ruling the marketplace, your innovative approach could knock them down a peg. With many more of your peers competing, your landscape could be busy. And never, ever stop innovating.

Whatever your industry, continuous innovation and disruption of your existing market can keep you on your toes and away from complacency. How else could these trends relate to you? Let me know what you think.Image credit: tookapic via Pixabay